The Central Bank Individual Accountability Framework Bill is finally published

The Bill will ensure greater transparency and clearer accountability within financial service providers by requiring firms to:

• clearly describe where responsibility lies through statements of responsibility and management responsibility maps;
• confirm through an annual certificate of compliance that those performing controlled functions (CFs) are, and remain, “fit and proper”;
• introduce new common conduct standards for CFs, additional conduct standards for pre-approval controlled functions (PCFs) and any other individuals exercising significant influence on the firm and business standards applicable to the firm; and
• impose on senior executive function holders (SEFs) a duty of responsibility to take “any step that is reasonable in the circumstances” in relation to the business areas they are responsible for to avoid contravention of the firm’s financial services obligations.

This is a change in language set out in the General Scheme of the Individual Accountability Framework Bill in 2021, which required SEFs to “take reasonable steps”. But without specific examples, the practical impact of this change remains unclear.

The Bill also includes an obligation on individuals performing CFs and PCFs to take any steps that are reasonable in the circumstances to ensure the conduct standards are met. 

Where an individual acknowledges a contravention, an alternative procedure will be made available under the Administrative Sanctions Procedure (ASP). This will allow the CBI to dispense an enquiry, and impose a sanction on the individual, which will not take effect unless confirmed by the High Court.

The key actions to take now

The details around key elements of the regime—specifically, statements of responsibility, management responsibility maps and reasonable steps—will be set out by the CBI in a consultation paper once the Bill is enacted. Regulations will be subsequently finalised following this consultation.

However, firms should commence their preparations now by considering the following:

1. Clarity around responsibilities and the overall governance framework
   
   Firms will be required to produce  responsibility maps and statements of responsibility for all SEFs. In the UK, the regulator highlighted weaknesses in these documents with regard to matters reserved for decision-making bodies (for example, boards versus board committees) and how individual responsibilities fit into the overall governance framework. Firms should review their current governance framework, committee terms of reference and individual responsibilities to identify gaps or areas of overlap, and ensure consistency across their documentation.
   
   
2. Individual and collective responsibility
   
   The increased regulatory scrutiny of individual responsibility should not be interpreted as undermining expectations around collective decision-making. How the board, in particular, interacts to set the tone from the top, determine strategy and challenge the executive on its implementation will remain a key area of focus for supervisors. Individuals, however, will need to be clear on how key decisions are reached and whether challenges or alternatives have been given sufficient consideration. Communicating increased regulatory expectations to the board, and non-executive directors in particular, workshopping how reasonable steps may be demonstrated and illustrating the complementary nature of individual and collective responsibility are examples of activities that can be implemented now. 
   
   
3. Implementation: business as usual
   
   Individual accountability is a journey rather than a destination. Aligning processes around conduct breach monitoring and reporting will require ongoing support, training and refinement. Considering how you will embed and test the desired culture and behaviours required to demonstrate that you are adhering to the spirit—not just the letter—of the requirements will also be an iterative journey. It is never too soon to start thinking about how you can enhance your culture of accountability and articulate that the work doesn’t stop once the project is complete, but is an ongoing process of review and refinement.

We are here to help you

PwC has considerable experience working with firms to implement accountability regimes across the world. Our projects include:

• the UK’s Senior Managers and Certification Regime (SMCR);
• the Australian Financial Accountability Regime (FAR);
• Singapore’s Individual Accountability and Conduct Regime; and
• Ireland’s Senior Executive Accountability Regime (SEAR).

PwC has developed integrated frameworks, systems and processes that utilise experts in regulation and compliance, programme management, data and technology, people and change management to manage and support implementation programmes and ease the transition from the project phase to business as usual.